INTERNATIONAL READING ASSOCIATION, INC. d/b/a International Literacy Association FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT

Transcription

1 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT AND 2014

2 TABLE OF CONTENTS AND 2014 Page No. Independent Auditors Report 1 Financial Statements Statements of Financial Position 3 Statements of Activities 4 Statements of Cash Flows 5 Notes to Financial Statements 7

3 Independent Auditors' Report To the Board of Directors of International Reading Association, Inc. We have audited the accompanying financial statements of International Reading Association, Inc. d/b/a International Literacy Association (nonprofit organization), which comprise the statements of financial position as of June 30, 2015 and 2014, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 1

4 To the Board of Directors of International Reading Association, Inc. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Reading Association, Inc. as of June 30, 2015 and 2014, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Business Combination On June 23, 2015, International Reading Association, Inc. was granted sole corporate membership of the Foundation for Impact on Literacy and Learning (Foundation), a separate nonprofit organization. This transaction was treated as an acquisition in accordance with Financial Accounting Standards Board Accounting Standards Codification , Business Combination (Note 15). As a result, the statement of financial position of International Reading Association, Inc. as of June 30, 2015 includes the accounts of the Foundation and the statements of activities, functional expenses, and cash flows for the year ended June 30, 2015 include the activity of the Foundation from June 23, 2015 through June 30, October 29, 2015 Wilmington, Delaware 2

5 STATEMENTS OF FINANCIAL POSITION AND CURRENT ASSETS Cash and Cash Equivalents $ 3,021,598 $ 3,058,401 Accounts Receivable - Net 157, ,946 Interest Receivable 5,652 1,188 Publication Inventory 175, ,267 Prepaid Expenses and Other 648, ,012 TOTAL CURRENT ASSETS 4,009,091 4,390,814 OTHER ASSETS Investments 12,059,905 13,544,013 Property and Equipment - Net 3,116,135 3,362,107 Assets Held in Charitable Remainder Trust 103, ,321 TOTAL OTHER ASSETS 15,279,148 17,013,441 TOTAL ASSETS $ 19,288,239 $ 21,404,255 CURRENT LIABILITIES Accounts Payable $ 174,287 $ 563,185 Deferred Revenues 4,319,991 2,519,878 Current Maturities of Capital Lease Payable 3,199 2,961 Accrued Expenses 661, ,150 TOTAL CURRENT LIABILITIES 5,158,960 3,652,174 OTHER LIABILITIES Amounts Held for Others in Charitable Remainder Trust 76,325 80,407 Capital Lease Payable (Net of Current Maturities) 4,811 8,014 TOTAL OTHER LIABILITIES 81,136 88,421 TOTAL LIABILITIES 5,240,096 3,740,595 NET ASSETS Unrestricted Undesignated (2,061,576) 154,551 Board-Designated 15,480,827 17,210,297 Total Unrestricted 13,419,251 17,364,848 Temporarily Restricted 452, ,898 Permanently Restricted 176, ,914 TOTAL NET ASSETS 14,048,143 17,663,660 TOTAL LIABILITIES AND NET ASSETS $ 19,288,239 $ 21,404,255 The accompanying notes are an integral part of these financial statements. 3

6 STATEMENTS OF ACTIVITIES YEARS ENDED AND Temporarily Permanently Unrestricted Restricted Restricted Total REVENUE AND OTHER SUPPORT Journals $ 1,305,677 $ - $ - $ 1,305,677 Membership 1,922, ,922,396 Publications 1,562, ,562,929 Annual Convention Contributions and Grants 89, ,413 Investment Income 317,543 7, ,217 Change in Value of Interest in Charitable Trust - - (131) (131) Other Revenue 226, ,964 Excess of Assets Acquired Over Liabilities Assumed in Donation of Foundation 200, , ,107 Total Revenue 5,625, ,198 (131) 5,963,572 Net Assets Released from Restrictions 7,987 (7,987) - - TOTAL REVENUE AND OTHER SUPPORT 5,633, ,211 (131) 5,963,572 EXPENSES Direct Product Cost - Salary and Benefits 1,708, ,708,891 Direct Product Cost - Cost of Goods and Services 1,809, ,809,842 Marketing and Selling Salary and Benefits 331, ,890 Marketing and Selling Expense 792, ,986 Other Operating Salary and Benefits 3,168, ,168,203 Other Operating Expenses 1,767, ,767,277 TOTAL EXPENSES 9,579, ,579,089 CHANGE IN NET ASSETS (3,945,597) 330,211 (131) (3,615,517) NET ASSETS - Beginning of Year 17,364, , ,914 17,663,660 NET ASSETS - End of Year $ 13,419,251 $ 452,109 $ 176,783 $ 14,048,143

7 2014 Temporarily Permanently Unrestricted Restricted Restricted Total $ 1,452,481 $ - $ - $ 1,452,481 2,004, ,004,543 2,169, ,169,660 4,235, ,235,012 1,142, ,142,539 1,571,068 43,830-1,614, ,025 5, , , ,841,902 43,830 5,025 12,890,757 6,000 (6,000) ,847,902 37,830 5,025 12,890,757 1,735, ,735,966 2,683, ,683, , ,763 1,156, ,156,877 3,437, ,437,922 3,184, ,184,214 12,473, ,473, ,214 37,830 5, ,069 16,990,634 84, ,889 17,246,591 $ 17,364,848 $ 121,898 $ 176,914 $ 17,663,660 The accompanying notes are an integral part of these financial statements. 4

8 STATEMENTS OF CASH FLOWS YEARS ENDED AND CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers, Gifts, and Grants $ 7,567,927 $ 10,613,046 Cash Paid to Suppliers and Employees (9,868,921) (11,994,501) Interest and Dividends Received 494, ,558 Interest Paid - (967) NET CASH FROM OPERATING ACTIVITIES (1,806,698) (894,864) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property and Equipment (100,125) (88,375) Proceeds from Disposal of Property and Equipment 7,164 2,105 Purchase of Investments (2,341,831) (6,179,530) Proceeds from Disposal of Investments 3,652,396 8,231,124 Cash Assumed in Donation of Foundation 555,256 - NET CASH FROM INVESTING ACTIVITIES 1,772,860 1,965,324 CASH FLOWS FROM FINANCING ACTIVITIES Payments of Obligations Under Capital Lease (2,965) (2,741) NET CHANGE IN CASH AND CASH EQUIVALENTS (36,803) 1,067,719 CASH AND CASH EQUIVALENTS - Beginning of Year 3,058,401 1,990,682 CASH AND CASH EQUIVALENTS - End of Year $ 3,021,598 $ 3,058,401 NONCASH INVESTING AND FINANCING ACTIVITIES Accounts Payable Assumed in Donation of Foundation $ 24,149 $ - The accompanying notes are an integral part of these financial statements. 5

9 STATEMENTS OF CASH FLOWS - CONTINUED YEARS ENDED AND RECONCILIATION OF CHANGE IN NET ASSETS TO NET NET CASH FROM OPERATING ACTIVITIES Change in Net Assets $ (3,615,517) $ 417,069 Adjustments to Reconcile Change in Net Assets to Net Cash from Operating Activities Depreciation and Amortization 337, ,154 Loss on Disposal of Property and Equipment 1,192 2,705 Bad Debt Expense (Reduction of Allowance) (31,691) 4,655 Increase (Reduction) of Publication Inventory Reserves 20,829 (128,447) Change in Value of Interest in Charitable Trust 131 (5,025) Net Realized and Unrealized (Gain) Loss on Investments 173,543 (1,128,789) Excess of Assets Acquired Over Liabilities Assumed in Donation of Foundation (531,107) - Change in Assets Accounts Receivable 659,243 (49,981) Interest Receivable (4,464) 1,449 Publication Inventory 109, ,573 Prepaid Expenses and Other (408,559) 98,164 Change in Liabilities Accounts Payable (413,047) 59,407 Deferred Revenue 1,800,113 (610,512) Accrued Expenses 95,333 (296,286) NET CASH FROM OPERATING ACTIVITIES $ (1,806,698) $ (894,864) The accompanying notes are an integral part of these financial statements. 6

10 NOTES TO FINANCIAL STATEMENTS NOTE 1: NATURE OF ACTIVITIES Nature of Activities - International Reading Association, Inc. (IRA) is a 501(c)(3) tax-exempt organization. Its mission is to promote literacy worldwide by improving the quality of reading instruction through the study of the reading process and teaching techniques, to serve as a clearinghouse for the dissemination of reading research through conferences, journals, and other publications, and to actively encourage the lifetime reading habit. As of June 30, 2014, International Reading Association, Inc. operated under the name International Literacy Association. Management formed a separate Delaware nonprofit corporation in 2015 under the name International Literacy Association (ILA) for the purpose of receiving 100% of the activities of International Reading Association, Inc. The purpose of transferring 100% of the activities to ILA will allow the organization to move jurisdiction from Pennsylvania to Delaware, which is the jurisdiction of its operations. The transfer of assets, liabilities, and activities is expected to occur in January Upon the completion of the transfer, IRA will cease its existence leaving ILA as the surviving organization. As of and prior to June 30, 2015, ILA had no net assets or activities. On June 23, 2015, International Reading Association, Inc. was granted sole corporate membership of the Foundation for Impact on Literacy and Learning (Foundation), a separate nonprofit organization. This transaction was treated as an acquisition in accordance with Financial Accounting Standards Board Accounting Standards Codification , Business Combination (Note 15). As a result, the statement of financial position of International Reading Association, Inc. as of June 30, 2015 includes the accounts of the Foundation and the statements of activities, functional expenses, and cash flows for the year ended June 30, 2015 include the activity of the Foundation from June 23, 2015 through June 30, NOTE 2: SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - Transactions between IRA and the Foundation subsequent to the date of acquisition are eliminated. The term Association in these financial statements is used to describe IRA prior to the date of acquisition and the consolidated reporting unit subsequent to the date of acquisition. Comparability of Financial Statements - The Association traditionally conducts an annual conference. The revenue from the conference comprises a significant portion of the Association s revenue. During the year ended June 30, 2014, annual conference revenue was $4,235,012, or 33% of total revenue. In prior years, the conference occurred at a date close to but prior to the end of the Association s fiscal year. The Association decided to move the timing of its annual conference, beginning with its 2015 conference, to July. As a result, there is no annual conference revenue recognized during the year ended June 30,

11 NOTE 2: SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Basis of Presentation - The accompanying financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. Authoritative guidance requires that net assets and revenues, gains, expenses, and losses be classified as unrestricted, temporarily restricted, or permanently restricted based on the existence or absence of donor-imposed restrictions as follows: Permanently Restricted - Net assets subject to donor-imposed stipulations that are maintained permanently by the Association. Temporarily Restricted - Net assets whose use by the Association is subject to donor-imposed stipulations that can be fulfilled by actions of the Association pursuant to those stipulations or that expire by the passage of time. Unrestricted Net Assets - Net assets that are not subject to donor-imposed stipulations. Unrestricted net assets may be designated for specific purpose by action of the Board of Directors. Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. Cash and Cash Equivalents - Cash and cash equivalents represent short-term securities purchased with an original maturity of three months or less and money market mutual funds. Cash equivalents are readily convertible to cash and are stated at fair value. Accounts Receivable - Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on its assessment of the current status of individual accounts. The allowance for doubtful accounts was $13,904 and $45,595 as of June 30, 2015 and 2014, respectively. Investments - Investments are carried at fair value. Investments in equity securities and debt securities with readily determinable fair values are determined based on quoted market prices. Investment sales and purchases are determined by the specific identification method and are recorded on the trade date. Changes in fair value of investments are recognized as increases or decreases in unrestricted net assets unless 8

12 NOTE 2: SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Investments - continued - their use is temporarily or permanently restricted by explicit donor stipulations or by law. Unrealized gains and losses are included in revenue and other support. The Association also invests in a variety of alternative investments. Such investments are accounted for at estimated fair value and are disclosed in the aggregate as Alternative Investments in Note 4. Publication Inventory - Publication inventory is valued at the lower of cost or market determined using the first-in, first-out basis. The Association estimates a reserve for obsolescence and slow-moving inventory based on a historical analysis of the quantity-on-hand compared to actual sales. Inactive products are reserved at 100%. Property, Plant, and Equipment - Purchased property and equipment are capitalized at cost. Donations of property and equipment are recorded as support at their estimated fair value. Land is recorded at cost and is not depreciated. Maintenance and repairs are charged to expense as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the depreciable assets. Useful lives of depreciable assets are as follows: Buildings and Improvements Furniture, Equipment, and Software Vehicles 15 to 40 Years 3 to 7 Years 7 Years Prepaid Expenses - Prepaid expenses include postage, insurance, conference expenses, and travel advances. Deferred Revenue and Revenue Recognition - Revenue from memberships and journal subscriptions is deferred and recognized on a straight-line basis over the term of the membership or subscription, which is primarily for one year. Conference fees and related expenses are recognized in the period in which the event is held. Revenue from sale of publications is generally recognized when the product is shipped. Advertising and rental income are recorded on the accrual basis. Income Taxes - The Association is a nonprofit organization that is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code (IRC) and therefore has made no provision for federal income taxes in the accompanying financial statements. In addition, the Organization qualifies for the charitable contribution deduction under Section 170(b)(1)(A) and has been determined by the Internal Revenue Service (IRS) not to be a private foundation within the meaning of Section 509(a)(2) of the IRC. Income not related to the Association s tax-exempt purpose may be subject to taxation as unrelated business 9

13 NOTE 2: SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Income Taxes - continued - income. Accounting principles generally accepted in the United States of America impose a threshold for determining when an income tax benefit can be recognized in regard to uncertain tax positions. The Association has determined that no liability for uncertain tax positions is required to be accrued and included in the statements of financial position as of June 30, 2015 and The federal informational returns of the Association for the years ended June 30, 2012, 2013 and 2014 are subject to examination by the IRS, generally for three years after they were filed. Advertising - Non-direct-response advertising costs are expensed as incurred. Advertising expenses for the years ended June 2015 and 2014 were $108,648 and $278,347, respectively. Direct-response advertising costs related to the annual conference are capitalized and recognized as expenses upon the occurrence of the conference. Capitalized advertising costs for the years ended June 2015 and 2014 were $49,953 and $0, respectively. Shipping and Handling - Shipping and handling costs are expensed as incurred. Shipping and handling costs were $163,215 and $178,737 for the years ended June 30, 2015 and 2014, respectively. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentration of Credit Risk - The Association maintains its cash and cash equivalents in various financial institutions that, at times, may exceed federally insured limits. The Association has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. Other financial instruments that potentially subject the Association to concentrations of credit risk consist principally of accounts receivable and investments. Concentrations of credit risk with respect to accounts receivable are limited due to the number of customers comprising the receivable balance and their dispersion throughout the country. Concentrations of credit risk with respect to investments are limited due to the placement of its investments with several professional investment advisors subject to the Association s investment policy. Subsequent Events - The Association's policy is to evaluate events and transactions subsequent to its year end for potential recognition in the financial statements or disclosure in the notes to the financial statements. Management has evaluated events and transactions through the date of the independent auditors' report, which is the date the financial statements were available to be issued. 10

14 NOTE 3: PUBLICATION INVENTORY Publication inventory is comprised of the following as of June 30: Work-In-Progress $ 13,937 $ 13,173 Finished Goods 547, ,879 Other Merchandise 3, , ,804 Less: Obsolescence Reserve 388, ,537 $ 175,876 $ 306,267 NOTE 4: INVESTMENTS Investments consisted of the following as of June 30: Cash Funds Restricted for Endowment $ 12,351 $ 8,421 Equity Securities 425, ,168 Mutual Funds International Equity 1,364,852 1,550,919 Domestic Equity 2,979,997 3,426,841 Fixed Income 3,803,584 4,095,700 Other Funds 463, ,797 Debt Instruments Mortgage-Backed Securities 21,296 26,785 Alternative Investments 2,988,454 3,211,382 Total Investments $ 12,059,905 $ 13,544,013 Estimated fair value of investments is based on quoted market prices, except for alternative investments for which quoted market prices are not available. Alternative investments are carried at their net asset value per share, as a practical expedient, as provided by the investment managers. Alternative investments are primarily in private equity funds, in which the underlying investments are in limited partnerships, venture capital partnerships and buyout funds, and real estate funds. Because alternative investments are not readily marketable, their estimated value is subject to uncertainty, and therefore may differ from the value that would have been used had a ready market for such investments existed. These instruments may contain elements of both credit risk and market risk. Such risks 11

15 NOTE 4: INVESTMENTS - CONTINUED include, but are not limited to: limited liquidity, absence of oversight, dependence on key individuals, emphasis on speculative investments, and nondisclosure of portfolio composition. The Association reviews and evaluates the values provided by the investment managers and agrees with the valuation methods and assumptions used in determining fair value of the alternative investments. The Association requests, receives, and reviews the audited financial statements from all investment managers. Investment income consisted of the following for the years ended June 30: Unrealized Gains (Losses) $ (202,071) $ 21,682 Realized Gains 28,528 1,107,107 Interest and Dividends 529, ,244 Investment Advisory Fees (31,204) (39,135) Total Investment Income $ 325,217 $ 1,614,898 Under the terms of certain limited partnership agreements, the Association is obligated to periodically advance additional funding. As of June 30, 2015 and 2014, the Association had outstanding commitments of approximately $141,250 and $234,350, respectively, to provide funding to limited partnerships (Note 10). NOTE 5: PROPERTY AND EQUIPMENT Property and equipment consisted of the following as of June 30: Land $ 1,089,848 $ 1,089,848 Buildings and Improvements 4,593,528 4,593,528 Furniture, Equipment, and Software 4,625,236 4,755,154 Vehicles - 23,718 Construction in Progress 24,047-10,332,659 10,462,248 Accumulated Depreciation and Amortization (7,216,524) (7,100,141) Property and Equipment - Net $ 3,116,135 $ 3,362,107 Total depreciation and amortization expense for the years ended June 30, 2015 and 2014 was $337,741 and $563,154, respectively. 12

16 NOTE 6: SPLIT-INTEREST AGREEMENTS The Association holds investments as the trustee of a charitable remainder trust. During the term of the trust, the Association will make payments annually to the designated income beneficiary equal to 6% of the fair value of the trust s assets on the first day of the year. Upon the death of the income beneficiary, the Association will receive the undistributed remainder of the principal and income in the trust. The trust s assets are measured at fair value and are reported in the statements of financial position as assets held in charitable remainder trust in the amount of $103,108 and $107,321 as of June 30, 2015 and 2014, respectively. The Association recognizes a liability for the estimated present value of payments to be made to the income beneficiary. The liability is reported in the statements of financial position as amounts held for others in charitable remainder trust. The liability was determined using the estimated life expectancy of the income beneficiary and was discounted to present value using a rate of 8%, based on the estimated rate of return on the trust's portfolio assets. As of June 30, 2015 and 2014, the liability was $76,325 and $80,407, respectively. The remainder of principal and interest to be received by the Association is restricted to an endowment fund for public education awards. As a result, net assets from the Association s irrevocable beneficial interest in charitable remainder trusts are reported as permanently restricted. NOTE 7: EMPLOYEE RETIREMENT PLAN The Association sponsors a defined contribution (money purchase) retirement plan (Plan) for the benefit of its employees. All salaried employees who work 1,000 hours or more per year are eligible to participate in the Plan. The Plan is funded by Association contributions of 9% of each participant s compensation. These contributions vest immediately. Employees may voluntarily elect to supplement the Association s contributions. Expenses associated with the Plan amounted to $322,786 and $333,164 during the years ended June 30, 2015 and 2014, respectively. NOTE 8: COMMITMENTS AND CONTINGENCIES As of June 30, 2015, the Association had commitments of approximately $711,548 for conference-related services, which are expected to be incurred between 2016 and NOTE 9: NET ASSETS The Board of Directors retains full control over the unrestricted board-designated net assets to achieve any of its institutional purposes. As of June 30, 2015 and 2014, the Association maintained board-designated net assets for several projects. 13

17 NOTE 9: NET ASSETS - CONTINUED Temporarily restricted net assets consisted of the following as of June 30: Cumulative Earnings on Endowed Funds - Restricted for Research $ 121,585 $ 121,898 Foundation - Lead2Feed World Hunger Leadership Challenge 303,067 - Foundation - Dream Up Program 2,678 - Foundation - Panasonic Student Eco Citizenship Project 24,779 - $ 452,109 $ 121,898 Permanently restricted net assets consisted of the following as of June 30: Corpus of Endowed Funds (Note 11) $ 150,000 $ 150,000 Beneficial Interest in Charitable Remainder Trust 26,783 26,914 $ 176,783 $ 176,914 NOTE 10: FAIR VALUE MEASUREMENTS The Association follows the provisions of Financial Accounting Standards Board Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosure. Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The fair value hierarchy is categorized into three levels based on the inputs as follows: Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Association has the ability to access. Since valuations are based on quoted market prices that are readily and regularly available in an active market, it does not entail a significant degree of judgment. Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. 14

18 NOTE 10: FAIR VALUE MEASUREMENTS - CONTINUED Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Fair values of assets measured on a recurring basis as of June 30 were as follows: Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) 2015 Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Investments Cash Funds $ 12,351 $ 12,351 $ - $ - Equity Securities 425, , Mutual Funds International Equity 1,364,852 1,364, Domestic Equity 2,979,997 2,979, Fixed Income 3,803,584 3,803, Other Funds 463, , Debt Instruments Mortgage-Backed Securities 21,296 21, Alternative Investments 2,988, ,988,454 Total Investments 12,059,905 9,071,451-2,988,454 Assets Held in Charitable Trust 103, , Assets Measured at Fair Value $ 12,163,013 $ 9,174,559 $ - $ 2,988,454 15

19 NOTE 10: FAIR VALUE MEASUREMENTS - CONTINUED Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) 2014 Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Investments Cash Funds $ 8,421 $ 8,421 $ - $ - Equity Securities 525, , Mutual Funds International Equity 1,550,919 1,550, Domestic Equity 3,426,841 3,426, Fixed Income 4,095,700 4,095, Other Funds 698, , Debt Instruments Mortgage-Backed Securities 26,785 26, Alternative Investments 3,211, ,211,382 Total Investments 13,544,013 10,332,631-3,211,382 Assets Held in Charitable Trust 107, , Assets Measured at Fair Value $ 13,651,334 $ 10,439,952 $ - $ 3,211,382 Fair values for investments are determined by reference to quoted market prices and other relevant information generated by market transactions. Assets measured at fair value on a recurring basis using significant unobservable inputs (level 3) were as follows for the years ended June 30: Balance - Beginning of Year $ 3,211,382 $ 5,140,226 Gains on Investments 283,870 96,594 Liquidations of Investments (Net) (506,798) (2,025,438) Balance - End of Year $ 2,988,454 $ 3,211,382 16

20 NOTE 10: FAIR VALUE MEASUREMENTS - CONTINUED Fair value measurements of investments in certain entities that calculate net asset value per share (or its equivalent) were as follows as of June 30: 2015 Unfunded Redemption Redemption Class of Investment Fair Value Commitments Frequency Notice Period Alternative Investments Absolute Return Funds (a) $ 1,304,328 $ - Semi-Annual 90 Days Real Estate Funds (b) 261,327 18,250 N/A N/A Private Equity Funds (c) 1,422, ,000 N/A N/A Total $ 2,988,454 $ 141, Unfunded Redemption Redemption Class of Investment Fair Value Commitments Frequency Notice Period Alternative Investments Absolute Return Funds (a) $ 1,249,402 $ - Semi-Annual 90 Days Real Estate Funds (b) 359,965 22,250 N/A N/A Private Equity Funds (c) 1,602, ,100 N/A N/A Total $ 3,211,382 $ 234,350 (a) Absolute Return Fund - Investments in this category focus on multi-strategy investing including, but not limited to, a variety of arbitrage strategies, distressed investments, private equity, long/short equity, special situations, and convertible hedging. These funds can be redeemed semi-annually with a 90-day notice period. (b) Real Estate Funds - This category s investments include any interest in or vehicle relating to real estate assets. As of June 30, 2015 and 2014, there were no redemption provisions for these funds. Distributions of available funds are made at the manager s discretion. (c) Private Equity Funds - Holdings in this category include private equity, venture capital funds, buyout funds, secondary funds, and direct investments. As of June 30, 2015 and 2014, there were no redemption provisions for these funds. Distributions of available funds are made at the manager s discretion. 17

21 NOTE 11: ENDOWMENT FUNDS As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. The Association s endowment consists of a portfolio of actively managed funds established to provide both a source of operating funds and long-term financial stability. The endowment includes donor-restricted endowment funds and endowment funds designated by the Board of Directors to function as quasi-endowments. Interpretation of Relevant Law - The Association has interpreted the statute as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds, absent explicit donor stipulations to the contrary. As a result of this interpretation, the Association classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. Interest and dividends earned on the endowment funds are classified as temporarily restricted in accordance with the donor s wishes. Funds with Deficiencies - From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the historic dollar value. Deficiencies of this nature are reported by a charge to unrestricted net assets and a corresponding increase to either permanently restricted net assets or temporarily restricted net assets as appropriate. As of June 30, 2015 and 2014, the Association did not record any charges to unrestricted net assets for deficiencies in funds. Endowment Spending Policy - The Association s policy stipulates that spending from quasi-endowment and endowment can be up to 5% of the December 31 market value prior to the start of the fiscal year. Return Objectives and Risk Parameters - The Association has adopted an investment policy for endowment assets that attempts to provide a predictable stream of funding to programs supported by the endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Association must hold in perpetuity. Under this policy, the endowment assets are invested in a manner that is intended to produce results that equal or exceed annual inflation while assuming a moderate level of investment risk. Actual returns in any given year may vary from this amount. 18

22 NOTE 11: ENDOWMENT FUNDS - CONTINUED Strategies Employed for Achieving Objectives - To satisfy its long-term rate-of-return objectives, the Association relies on a strategy in which investment returns are achieved through current yield (interest and dividends). The Association targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Endowment Composition Temporarily Permanently Unrestricted Restricted Restricted Total Donor-Restricted - Endowment Funds $ - $ 121,585 $ 150,000 $ 271,585 Board-Designated Funds 12,213, ,213,910 Total $ 12,213,910 $ 121,585 $ 150,000 $ 12,485, Temporarily Permanently Unrestricted Restricted Restricted Total Donor-Restricted - Endowment Funds $ - $ 121,898 $ 150,000 $ 271,898 Board-Designated Funds 13,888, ,888,380 Total $ 13,888,380 $ 121,898 $ 150,000 $ 14,160,278 Endowment Fund Activity - Changes in the fund s net assets for the year ended June 30, 2015 were as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Fund's Net Assets - July 1, 2014 $ 13,888,380 $ 121,898 $ 150,000 $ 14,160,278 Interest and Dividends 521,488 8, ,964 Unrealized Losses on Investments (189,161) (12,910) - (202,071) Realized Gains on Investments 15,626 12,902-28,528 Investment Advisory Fees (30,410) (794) - (31,204) Appropriated for Expenditure (1,992,013) (7,987) - (2,000,000) Fund's Net Assets - June 30, 2015 $ 12,213,910 $ 121,585 $ 150,000 $ 12,485,495 19

23 NOTE 11: ENDOWMENT FUNDS - CONTINUED Endowment Fund Activity - continued Changes in the fund s net assets for the year ended June 30, 2014 were as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Fund's Net Assets - July 1, 2013 $ 14,612,663 $ 84,068 $ 150,000 $ 14,846,731 Interest and Dividends 518,291 6, ,244 Unrealized Gains on Investments 12,108 9,574-21,682 Realized Gains on Investments 1,079,152 27,955-1,107,107 Investment Advisory Fees (38,483) (652) - (39,135) Appropriated for Expenditure (2,295,351) (6,000) - (2,301,351) Fund's Net Assets - June 30, 2014 $ 13,888,380 $ 121,898 $ 150,000 $ 14,160,278 NOTE 12: LEASES The Association leases copiers and printers for various terms under noncancelable operating lease agreements. The leases expire at various dates through March The Association leases equipment under a capital lease agreement expiring October The asset and liability under the capital lease are originally recorded at the present value of the minimum lease payments. Rental expense for the years ended June 30, 2015 and 2014 totaled $33,180 and $36,888, respectively. The following is a summary of the equipment held under capital leases as of June 30: Equipment $ 15,429 $ 15,429 Less: Accumulated Depreciation 8,229 5,143 $ 7,200 $ 10,286 20

24 NOTE 12: LEASES - CONTINUED As of June 30, 2015, future minimum lease payments and the present value of minimum capital lease payments are approximately: Capital Leases Operating Leases 2016 $ 3,708 $ 33, ,708 33, ,382 24,885 Total Future Minimum Lease Payments 8,798 $ 91,245 Less: Amount Representing Imputed Interest 788 Present Value of Future Minimum Lease Payments 8,010 Less: Current Maturities 3,199 Capital Lease Obligations - Net of Current Maturities $ 4,811 The Association leases out office space for various terms under noncancelable operating lease agreements. The leases expire at various dates through April Rental income for the years ended June 30, 2015 and 2014 totaled $144,737 and $130,409, respectively. As of June 30, 2015, future minimum rental payments to be received on noncancelable operating leases are contractually due as follows: Operating Leases 2016 $ 126, , , , ,478 Total Future Minimum Rental Payments $ 392,252 21

25 NOTE 13: CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Association to concentrations of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. As June 30, 2015 and 2014, the Association had $2,229,432 and $2,108,081 in excess of FDICinsured limits, respectively. NOTE 14: EXPENSES BY FUNCTIONAL CLASSIFICATION The costs of providing various programs and other activities have not been summarized on a functional basis in the statements of activities. Expenses by function were as follows for the years ended June 30: Program Services $ 7,941,550 $ 10,673,913 Supporting Services Management and General 1,545,408 1,679,234 Fundraising 92, ,541 Total Expenses $ 9,579,089 $ 12,473,688 NOTE 15: BUSINESS COMBINATION On June 23, 2015, the articles of incorporation for Foundation for Impact on Literacy and Learning (Foundation) were restated to name International Literacy Association the sole corporate member of the Foundation. The Foundation is a 501(c)(3) tax-exempt organization whose purpose is to support the programs of the Association. The acquisition occurred because the Foundation s former parent company experienced a corporate restructuring and they felt a change in control would be in the best interest for the Foundation. The following table summarizes the amounts of assets acquired and liabilities assumed recognized at the acquisition date: Cash $ 555,256 Accounts Payable Assumed (24,149) Excess of Assets Acquired Over Liabilities Assumed in Donation of Foundation $ 531,107 22

26 NOTE 15: BUSINESS COMBINATION - CONTINUED In addition to the assets acquired and liabilities assumed as a result of the acquisition, the following balances and activities from the Foundation have been included in the financial statements as of or for the year ended June 30, 2015: Cash $ 531,169 Account Payable 15,139 Interest Income 62 Expenses 15,139 NOTE 16: RECLASSIFICATIONS Certain accounts in the prior year statement of financial position have been reclassified for comparative purposes to conform to the current year presentation. These reclassifications had no effect on previously reported changes in net assets or total net assets. 23